On February 21, 2019, FERC issued an order accepting tariff revisions proposed by the California Independent System Operator Corporation (“CAISO”) regarding manual load forecast adjustments (also known as “load conformance”) in the CAISO and the western Energy Imbalance Market (“EIM”). CAISO’s December 12, 2018 filing proposed tariff additions to describe: (1) load-conforming practice used in the real-time market; (2) a similar load-conforming practice used in the residual unit commitment (“RUC”) process of the day-ahead market; and (3) a “load conformance limiter” tool to automatically limit system operator-initiated load conformance in the real-time market to ensure that adjustments to load do not exceed actual market ramping capability, thereby triggering shortage pricing when extra supply is not actually needed. FERC approved CAISO’s tariff revisions, effective February 27, 2019, over objections from parties that the load conformance limiter mechanism suppresses market prices and prevents shortage pricing.

As CAISO explained in its filing, the automated load forecast used in clearing supply bids in its real-time market against forecast loads and exports does not always match actual system conditions due to issues like load forecast error, variable energy resources deviating significantly from forecasts, and unpredictable events like outages or weather changes. When market operators observe that the load forecast input into the real-time market is not consistent with actual system conditions, they may manually adjust the load forecast before the market runs. This practice is known as “load conformance.” FERC accepted CAISO’s proposal to add a section to its tariff describing this practice, concluding that “operators in the CAISO and EIM entity balancing authority areas should have the ability to manually adjust load forecasts in the real-time market when necessary to maintain system reliability and to keep the system in balance.”

Similarly, with respect to the day-ahead market, CAISO conducts an RUC process in which the system operator clears availability bids against the next day’s hourly demand forecast, less the energy scheduled in the integrated forward market. FERC accepted CAISO’s proposal to add a separate tariff section to describe its “RUC Net Short” practice of conforming the load forecasts so that the RUC process procures additional capacity after taking into account fire threats, load forecast errors, generator outages, and any other issues that will result in a different supply availability than was bid into the day-ahead market.

CAISO’s filing also proposed an enhanced “load conformance limiter” that it stated would “more effectively prevent load conformance practices from triggering shortage pricing where there likely is no shortage.” FERC’s order approving these revisions rejected arguments that the load limiter proposal, among other things, violates FERC Order No. 825 on shortage pricing triggers for RTOs and ISOs. FERC explained that Order No. 825 requires RTOs and ISOs to trigger shortage pricing for any interval in which a shortage of energy or operating reserves is indicated during the pricing of resources for that interval—Order No. 825 does not address scenarios in which the load conformance inaccurately indicates a shortage. According to FERC, the load conformance limiter “is a reasonable mechanism to ensure that shortage pricing is not triggered when there is no actual shortage condition on the system.” However, FERC also noted that CAISO should work to reduce its reliance on load conformances, and should make the necessary market design and process improvements to ultimately eliminate the limiter.

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